For investors in search of high yields and growing distributions, there is no better part of the market to look at than the midstream energy sector. While the players in the industry do face the risks associated with slumping energy volumes and aren't completely immune to energy price downturns, they are generally in great financial shape at the moment and seeing increased growth opportunities.
Let's look at five of my favorite stocks in this space.
Energy Transfer
NYSE: ET
Key Data Points
Energy Transfer (ET 0.53%) has built out one of the largest integrated midstream systems in the U.S., and it's positioned for growth. With over 90% of its EBITDA tied to fee-based contracts, many of them take-or-pay, it generates stable, predictable cash flows that support its generous dividend, which at the current share price offers a 7.1% forward yield. In addition, its payout is well-covered by its distributable cash flow (operating cash flow minus maintenance capex), and the company is targeting 3% to 5% annual distribution growth.
In addition, Energy Transfer is also entering a growth phase: It's boosting its growth capex from $3 billion in 2024 to $5 billion this year. With access to cheap natural gas due to its strong position in the Permian Basin, it is well positioned to take advantage of the growth in energy demand stemming from electricity-hungry new artificial intelligence (AI) data centers and rising LNG (liquefied natural gas) exports. The company has already signed a deal with data center developer Cloudburst to supply natural gas directly to its new data center project, and it looks poised to finally give the go-ahead to its long-awaited Lake Charles LNG project.
Trading at a forward enterprise value (EV)-to-EBITDA multiple of just 8.2, Energy Transfer offers a nice combination of a high yield and growth at an attractive price.
Enterprise Products Partners
NYSE: EPD
Key Data Points
Enterprise Products Partners (EPD 0.56%) has established itself as the most reliable company in the midstream space. It has increased its distribution for 26 consecutive years -- a span that included a number of difficult economic periods and down energy markets. Its consistency comes from its conservative nature. Typically, around 85% of its business is fee-based, which shields it from commodity price and spread swings, while providing it with a steady, predictable cash flow. In addition, its contracts often include take-or-pay provisions, meaning it gets paid regardless of whether or not customers make full use of the pipeline capacity or services they're contracting for.
That said, Enterprise is not afraid to take advantage of opportunities when it sees them. It plans to spend between $4 billion and $4.5 billion on growth projects in 2025, up from $3.9 billion last year. It currently has $7.6 billion in projects under construction, including $6 billion worth that are set to come online this year. That positions it for solid growth in the coming years.
Trading at a forward EV-to-EBITDA multiple under 10 and distributing a dividend that yields 6.7% at the current share price, Enterprise is an attractive investment option for income-oriented investors.
Western Midstream
NYSE: WES
Key Data Points
For investors looking for a stock with an even higher yield, Western Midstream (WES +1.64%) is a great option. At the current stock price, it yields 9.4%, its payout is backed by consistent, fee-based cash flow, and it has a conservative balance sheet with a leverage ratio under 3. In addition, most of Western Midstream's contracts include cost-of-service protections or minimum volume commitments, which reduces volume risk and gives it strong visibility into its future revenues.
However, the company isn't sitting still. Management is looking to grow its annual distribution by a mid-single-digit percentage annually. While Western Midstream is not pursuing growth as aggressively as some of its peers, it is still looking to invest in high-return projects or bolt-on acquisitions. One of its biggest growth projects is the Pathfinder pipeline, a major produced water system expected to cost up to $450 million. Only a modest portion of that spending is slated for this year, with most of the build-out coming in 2026. That should position the company for solid growth in the coming years.
Trading at a forward EV-to-EBITDA ratio of 9, Western Midstream offers the combination of a high, sustainable yield and a disciplined growth strategy.
Image source: Getty Images
MPLX
NYSE: MPLX
Key Data Points
MPLX (MPLX 0.19%) combines a high yield with strong distribution growth and a solid balance sheet. The company has grown its payout by double-digit percentages in each of the past three years, including a 12.5% increase in 2024, and currently offers a 7.4% forward yield. With a 1.5 distribution coverage ratio and a leverage ratio of just 3.3, the payout looks well-supported.
Most of MPLX's growth is coming from its natural gas and NGL (natural gas liquids) segment, which handles around 10% of the natural gas produced in the U.S. It's boosting its growth capex from $889 million in 2024 to $1.7 billion in 2025 to meet rising demand tied to exports and the need to power AI infrastructure. The company is also expanding its strategic footprint. It recently partnered with Oneok to enhance its export capabilities, and bought out its joint venture partners in the BANGL pipeline system to strengthen its position in the Permian.
With much of its crude oil logistics tied to its parent, Marathon Petroleum, MPLX benefits from a stable base business while continuing to invest in high-return growth projects. Trading at a forward EV-to-EBITDA ratio of just over 10, MPLX offers an attractive mix of income and growth at a reasonable valuation.
Genesis Energy
NYSE: GEL
Key Data Points
Genesis Energy (GEL +1.21%) is entering a new phase of its life following the sale of its soda ash business, which gave it over $1 billion in proceeds and allowed it to aggressively deleverage. With its high-cost debts and some of its convertible preferred units being retired, UBS estimates that Genesis will save $84 million in annual interest and preferred costs, boosting cash flow. The company is now focused squarely on offshore pipeline expansion, with its Shenandoah and Salamanca projects set to drive up to $150 million in incremental annual segment operating profit once they're fully online by mid-2025.
While Genesis's current yield sits at a more modest 3.9%, the company is positioning itself for meaningful distribution increases in the future. Offshore volumes are expected to normalize as it resolves mechanical issues, and its marine segment is on pace for record earnings in 2025.
While Genesis is a riskier investment than more established midstream names, the stock has significant potential for upside if the company can execute.
